Select Page

Fine art investment funds in Luxembourg: Exploring the Benefits of Special Limited Partnership (SLP)

by | Feb 5, 2023 | Finance, Investment funds, Wealth Management

Fine art investment funds in Luxembourg Exploring the Benefits of Special Limited Partnership (SLP)

I. Fine arts as alternative assets

Fine arts, collectibles and antiques, including digital assets have been growing in popularity as an alternative investment in recent years, with more and more investors seeking to diversify their portfolios and capitalize on the potential returns that the art market can offer. In 2020, the global art market reached an estimated value of $64.5 billion, a testament to the increasing interest in fine art investments. But how can art collectors and investors effectively turn their collections into investment opportunities? – Enter the Luxembourg Special Limited Partnership (SLP).

II. What is Luxembourg Special Limited Partnership (SLP)?

Luxembourg Special Limited Partnership (SLP) is a unique investment vehicle that enables fine art owners to convert their portfolios into investment opportunities for potential investors. It is fiscally transparent, meaning that it is not a legal entity, and the taxation occurs at the level of its investors. This makes SLP an attractive option for those looking to invest in fine art and other collectibles, as it offers a tax-efficient structure for these investments.

III. Benefits of Luxembourg SLP for Fine Art Investments

There are several benefits to using Luxembourg SLP for fine art investments, including:

Tax efficiency: As mentioned, the lack of legal entity status means that taxation occurs at the investor level, which can result in lower overall tax liabilities.

Transparency: SLP operates as an open-ended structure, providing investors with full visibility into the underlying assets and the investment strategy.

Liquidity: The open-ended structure of SLP also allows for greater liquidity, as new units can be issued and redeemed as needed.

Professional management: By pooling assets, SLP enables fine art owners to access professional investment management services thanks to the General Partner (GP) acting as the management company of the investment fund. GP helps to maximize returns and minimize risks.

IV. How Does Luxembourg SLP work for Fine Art Investments?

Investing in fine art through Luxembourg SLP is a relatively straightforward process. Firstly, the fine art owner would set up the SLP with the help of a professional service provider. Once the SLP is established, the fine art owner would transfer their fine art portfolio to the SLP. The SLP would then market the fine art portfolio to potential investors, who can invest in the SLP by purchasing units. The income generated from the fine art portfolio is then distributed among the investors.

V. Advantages of Investing in Fine Art through Luxembourg SLP

Investing in fine art through Luxembourg SLP has several advantages. Firstly, SLP provides investors with access to a diverse range of fine art assets, which can help to diversify their portfolios. Secondly, SLP offers a level of transparency and accountability that is not found in other investment vehicles, making it an attractive option for those who are unfamiliar with the fine art industry. Thirdly, the tax-efficient structure of SLP provides investors with a significant tax advantage, making it an attractive option for those looking to maximize their returns.

VI. Create your fine art investment fund in Luxembourg

The art market has continued to grow in recent years, offering investors new opportunities to diversify their portfolios and capitalize on potential returns. By using Luxembourg SLP, fine art owners can effectively turn their collections into investment opportunities, offering greater tax efficiency, transparency, liquidity, and professional management.

Contact your Damalion experts to launch your fine art investment fund in Luxembourg, now. 

Damalion – Luxembourg

Fine Art Investment Funds in Luxembourg — exploring the Special Limited Partnership (SLP / SCSp): legal setup, AIFMD options, governance, and tax treatment.

For professional and well-informed investors. Information below is general and does not constitute legal or tax advice.

Last updated:

Why SCSp for fine art?

The Luxembourg special limited partnership (société en commandite spéciale, SCSp; also called SLP) offers contractual flexibility, investor confidentiality at partner level, and the ability to operate as an alternative investment fund (AIF) with or without product-level regulation (e.g., as an unregulated AIF, or within a RAIF/SIF/Part II wrapper). It is suited to alternative assets such as art, collectibles, and related rights.

Legal & Tax FAQ

1) What is an SCSp / SLP and does it have legal personality?
An SCSp is a partnership governed by a limited partnership agreement (LPA) between one or more general partners (GP) and limited partners (LP). It has no legal personality separate from its partners; the GP(s) represent and bind the partnership. The LPA provides wide freedom to set economics, governance, and transfer rules.
2) Can an SCSp qualify as an Alternative Investment Fund (AIF)?
Yes. If the partnership raises capital from multiple investors to invest per a defined investment policy for their benefit, it will typically qualify as an AIF under the AIFMD framework. Where thresholds and other conditions are met, an AIFM (authorized or registered, as applicable) must be appointed.
3) When is CSSF product supervision required?
Unregulated SCSps are not product-supervised by the CSSF. If the strategy is set up as a RAIF, the fund is not authorized ex-ante by the CSSF but must appoint an authorized EU AIFM and comply with RAIF law; the AIFM and the depositary are supervised. Structures like SIF or Part II funds require CSSF authorization at product level.
4) Do we need an AIFM and what type?
RAIFs must appoint an authorized AIFM. Unregulated SCSps that are AIFs may appoint either an authorized AIFM or, if below AIFMD thresholds and conditions are met, a registered (sub-threshold) AIFM. The choice affects marketing possibilities (passporting) and risk/compliance obligations.
5) What depositary is required for an art fund?
AIFs must appoint a depositary. For assets other than financial instruments (e.g., physical art), Luxembourg law permits a professional depositary of assets other than financial instruments. RAIFs require a depositary. The depositary performs oversight and safekeeping (recordkeeping and ownership verification) rather than holding physical custody of non-custodiable assets.
6) Investor eligibility rules (professional / well-informed)?
Unregulated SCSps may target investors as defined in their LPA/offering documents, subject to AIFMD and local marketing rules. RAIFs and SIFs are limited to well-informed investors (including professional investors), typically with certain knowledge/experience or minimum investment requirements, subject to exemptions set by law.
7) Key constitutive documents and filings?
Core documents include the LPA, GP constitutional documents, and (where applicable) a private placement memorandum or issue document. An SCSp is formed by private deed; registration with the Luxembourg Trade and Companies Register (RCS) is required for certain particulars. RAIFs require a RAIF instrument and AIFM appointment with RAIF list filing; SIF/Part II require CSSF authorization.
8) VAT on management and advisory fees?
Management of qualifying special investment funds (e.g., SIF/RAIF meeting the VAT exemption criteria) may benefit from a VAT exemption on management services. Unregulated SCSps that do not qualify for the exemption generally bear Luxembourg VAT on management/advisory fees, subject to place-of-supply and reverse-charge rules.
9) Corporate income tax (CIT), municipal business tax (MBT), and net wealth tax (NWT)?
The SCSp is typically tax transparent for Luxembourg CIT/MBT and not subject to NWT at fund level. Transparency means partners are taxed according to their own status/jurisdiction on their share of income. If the SCSp (or its GP) is viewed as carrying on a commercial activity in Luxembourg, specific tax consequences may arise; careful structuring and substance analysis are required.
10) Withholding tax on distributions to investors?
Luxembourg generally levies no withholding tax on profit distributions made by a tax-transparent SCSp to partners. Investor-level taxation depends on the investor’s jurisdiction and applicable double tax treaties (if relevant to partners themselves).
11) Subscription tax (taxe d’abonnement)?
Unregulated SCSps are not subject to subscription tax at fund level. RAIFs and SIFs are generally subject to an annual subscription tax (commonly 0.01% of net assets, with specific exemptions/variations depending on asset class and structuring).
12) Capital duty, registration duties, and RCS fees?
Luxembourg levies no capital duty on contributions to an SCSp. Fixed registration and RCS filing fees apply to incorporation and subsequent filings. Additional duties may arise if certain deeds are voluntarily registered or involve Luxembourg-situs assets.
13) Valuation rules for art assets under AIFMD?
AIFs must implement a robust valuation policy and designate either the AIFM or an external valuer meeting independence and competence criteria. For non-financial assets such as art, periodic fair value must be determined using appropriate methodologies and documentation, subject to the AIFM’s oversight and depositary checks.
14) Marketing the fund in the EU/EEA?
Authorized AIFMs may use the AIFMD passport to market to professional investors across the EU/EEA. Structures managed by registered (sub-threshold) AIFMs must rely on national private placement regimes (NPPR), where available, and comply with local pre-marketing/notification rules.
15) AML/CFT and investor due diligence expectations?
The GP/AIFM, depositary, administrator, and other obliged entities must perform AML/CFT due diligence on investors and counterparties, including source-of-funds/source-of-wealth where required. Ongoing monitoring, sanctions/PEP screening, and enhanced due diligence apply per risk assessments and Luxembourg AML/CFT laws and regulations.

 

  • Graphic – Luxembourg
  • Graphic – Luxembourg

Categories